Appeals Court Strikes Down FCC's Net Neutrality Rules

On January 14, 2014, the U.S. Court of Appeals for the District of Columbia Circuit [enhanced version available to lexis.com subscribers] issued a long-awaited decision on the Federal Communications Commission's Open Internet Order.[1] That Order required broadband Internet providers to disclose their pricing and network management practices and, subject to reasonable network management, prohibits carriers from blocking access to lawful content and applications, or engaging in unreasonable discrimination between and among competing applications and services such as Amazon and Netflix.[2] The rules were adopted out of a concern that carriers might block, or otherwise grant preferential treatment to, their own Internet services, thereby disadvantaging competing content providers and consumers—and ultimately impairing the growth of the Internet.[3]

Verizon sought review of the FCC's Order. The opinion for the panel majority, by Circuit Judge Tatel, held that the FCC had ample authority under Section 706 of the Telecommunications Act of 1996 [enhanced version available to lexis.com subscribers] to adopt requirements designed to prevent practices that could impair broadband deployment. The court further decided that the rules in question were within the scope of Section 706 authority.

However, the court went on to hold that, while the rules pass muster under Section 706, they were contrary to other provisions of the Telecommunications Act and prior Commission decisions classifying the provision of broadband service by Verizon and others as an "information service," not common carriage. Since the nondiscrimination and anti-blocking rules are quintessential common carrier obligations, the court vacated those two key parts of the FCC's decision. The rule requiring disclosure of carrier network management practices was allowed to stand.

The case is noteworthy in several respects.

First, it appears to represent a ringing endorsement of potentially expansive FCC authority over the Internet. Furthermore, the majority endorsed the FCC’s conclusion that even though the number of instances in the record of actual abuses was small (only four), this was enough to justify the rule—at least when coupled with judicial deference to the FCC’s judgment that carriers have continued incentive to disadvantage competing Internet services.

While public interest groups and Democratic members of Congress are already calling for the FCC to exercise its authority under Section 706 to the fullest extent, the challenge for those so inclined is to fashion rules that avoid the common carrier problem. Thus, the Verizon decision could represent the triggering event for the Commission to revisit its former ruling and hold that broadband providers should be regulated as common carriers. The FCC's new Chairman, Tom Wheeler, has made it known that he is a strong supporter of net neutrality. But any such move would provoke major controversy at a time when the FCC has its plate full with other challenging issues like TV incentive auctions.

One middle-ground approach the FCC might pursue is to seek rehearing from the D.C. Circuit or review by the U.S. Supreme Court. Given the snail's pace at which the case has proceeded thus far, this could entail additional years of litigation during which time the Commission could defer having to decide whether to undertake what has been referred to as the "nuclear option" of common carrier reclassification. In the meantime, the agency could continue to use a case-by-case approach, should individual abuses be brought to its attention.

Another approach might be to attempt to fashion more flexible rules that bear less resemblance to per se common carrier obligations. The FCC did just this in an Order which the D. C. Circuit upheld in 2012.[4]

One effect of the decision is to free broadband providers to charge Internet services like Amazon, higher rates for faster, better Internet connections to their customers. Whether and how carriers will seek to take advantage of this ability—in effect charging more for content providers which use more of the carriers' broadband pipes—remains to be seen. But for its part at least, the petitioner in the case, Verizon, has made it clear that it remains committed to an open Internet which affords consumers competitive choices and unblocked access to lawful websites.

In conclusion, regardless of the precise legal strategy—or combination of strategies—the FCC now pursues, spillover effects from this key decision are likely to be seen for years to come.

Notes

3. The rules represented another attempt by the FCC to adopt open Internet requirements for broadband providers. In a case four years ago, the D.C. Circuit struck down earlier FCC requirements for open network management practices by broadband providers. See Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010) [enhanced version available to lexis.com subscribers].

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